Home >> DGM Bulletin Article: First Time Homebuyers Get a Real Tax Credit
First Time Homebuyers Get a Real Tax Credit
May 2009
In last year’s Housing and Economic Recovery Act of 2008, Congress provided certain home purchasers with a “tax credit” of 10% of the home’s price, up to $7,500. Homebuyers who had not owned and occupied a house as a principal residence in the three years before the purchase were eligible.
In reality, this tax break was not a true tax credit. Instead, qualified homebuyers received an interest-free loan from the federal government. That is, they received up to $7,500 up-front in tax savings, an IRS refund check, or both. However, taxpayers receiving that $7,500 were scheduled to repay that amount in higher taxes - $500 per year for 15 years. If those taxpayers sold the house within 5 years, repayment would be accelerated.
Raising the cap, forgiving repayment The Recovery Act modifies the homebuyer’s tax credit. The cap is now $8,000 on qualified home purchases over $80,000. (For less expensive homes, the tax credit is 10% of the price.) In addition, qualified homebuyers will not have to repay the $8,000 tax credit as long as they stay in the house as owners for at least 36 months. This credit amounts to an $8,000 discount on the home’s price, courtesy of the federal government.
Example: Mark and Claire Collins buy their first home for $100,000 and qualify for an $8,000 tax credit. Without this tax credit, they would have owed $1,000 when they filed their federal income tax return. The $8,000 tax credit completely offsets their $1,000 tax obligation, so they’ll owe no income tax with their return. In addition, they’ll get a $7,000 refund from the IRS for a total tax savings of $8,000.
Sooner or later Now that two laws have included a tax credit for homebuyers who have not owned and occupied a principal residence in the previous three years, there are two sets of tax benefits:
• For qualified home purchases that closed from April 9, 2008 – December 31, 2008. Taxpayers in this category can get a credit up to $7,500. They must repay the amount received under this provision over 15 years or sooner if they sell their home.
• For qualified home purchases that closed or will close from January 1, 2009 – November 30, 2009. Taxpayers in this category can get a credit up to $8,000. They will have no repayment obligation after they have owned and occupied the home for 36 months. (If they sell or move out within 36 months, they must repay the amount received under this provision.)
Taxpayers in either of these two categories face the same income limits. To get the full credit, a single taxpayer can have modified adjusted gross income (MAGI) no higher than $75,000; married couples filing joint tax returns can have MAGI up to $150,000. With MAGI up to $95,000 ($170,000 on joint returns), qualified homebuyers can get partial credits.
All qualified taxpayers may claim the appropriate credit on their 2008 tax return. If you have already filed your 2008 return and have not claimed the credit, our office can help you file an amended return. Alternatively, you can wait until you file your 2009 return to claim this tax credit.
